LIM Guan Eng should do both: tell the truth about the economy, no matter how bad it is, and convince investors that the country is on the right track, said economists.

The finance minister, they said, should not back down despite criticism that he is spooking investors, some of whom have pulled out funds from the local stock market.

They were commenting on recent statements attacking Lim of “playing politics” with the country’s finances and spooking investors.

Those in the defeated BN coalition alleged that Lim’s announcements on the state of the economy have led foreign investors to pull out and sell of their holdings in the stock market. As of June 8, the outflow stands at RM3.02 billion.   

Lim also earned a rebuke from PH’s de facto leader and a former finance minister Anwar Ibrahim, who said the former should focus on pacifying investors.

Experts, however, told The Malaysian Insight that by revealing everything, the weak parts of the economy can be fixed while Malaysia’s strength will allow businesses and investors to be confident in its viability. 

To do otherwise would only repeat the massive follies of the Barisan Nasional administration, where scandals such as 1Malaysia Developement Bhd were hidden from the public while it bled the country’s coffers.  

The only aspect of the MoF revelations that the experts could not agree on was whether to let the information out in bits and pieces or whether to compile it all in one ground-shattering report.

“In efforts to clean up the ministry, Lim as finance minister is obliged to give a transparent account on what had happened,” said Prof Edmund Terence Gomez of Universiti Malaya’s Faculty of Economics and Administration.

“To me, he has been doing the responsible thing,” the professor of political economy said.

Another academic Dr Yeah Kim Leng of Sunway University’s Business School said the two roles – talking about corruption or financial scandals and managing investor confidence – are “not mutually exclusive”.

“Good communication would shed light on the truth, namely on irregularities, and also give information for the public to evaluate the impact independently of the government’s assessment.”

Short-term turbulence 

Ever since taking over the MoF, Lim has constantly made eye-popping announcements on how his predecessor Najib Razak had mismanaged the country’s finances.

He revealed that the government’s true debt obligations, which includes direct debt and off-the-balance-sheets payments totaled close to RM1 trillion or 80.3% of gross domestic product (GDP). In comparison the BN only calculated direct debts which are 50.8% of GDP.

He also revealed that public money has been used to pay debts owed by 1Malaysia Development Berhad (1MDB) which were contrary to BN’s claims.

Lim also showed how the BN administration had been paying a oil and gas pipeline contractor 88% of the project’s value despite the fact it only completed an average of 13% of the work.  

Economist Lee Heng Guie of the Socio-Economic Research Centre (SERC) said the stock market turbulence is not just due to the MoF’s revelations but also to the changing interest rates between countries.

The stock markets of other emerging economies such as China, Hong Kong and Singapore have also suffered as investors move their funds to the United States to take advantage of better interest rates.

According to business daily StarBiz, Malaysia’s fund outflows were the lowest compared to its peers despite the fact that its been going on a month.

“Its important for the government to tell the truth to investors about the government’s debt for instance, but its also important to say how were are going to deal with the problem,” said Lee, who is SERC’s executive director.

Adli Amirullah of the Institute of Democracy and Economic Affairs (IDEAS) said the government should not worry too much about the short term turbulence in equity markets.

“This usually happens when there is a change in government. The markets are sensitive to external pressures such as developments in the United States, China and North Korea,” said Adli, IDEAS’ economics and business coordinator.

Good communications the key

Besides revealing the economy’s true picture, the government must put equal emphasis on communicating its solutions.

“I recommend the government come out with a comprehensive report on problems and solutions instead of one day releasing A and then releasing B,” said IDEAS’ Adli.

Lee of SERC said investors are still waiting on the government’s decisions concerning mega-projects such as the Kuala Lumpur-Singapore High Speed Rail (HSR) and the East Coast Rail Link (ECRL).

Yeah of Sunway University said a good MoF communications strategy would provide state measures to move forward and deal with the country’s problems.

“A communication challenge usually centres on whether to release the news piecemeal over time for the market to absorb the impact in small shocks over a prolonged period, or to adopt a big bang approach for the market to have a one off, gigantic adjustment.

“Either way, the key is to develop trust and credibility so that with clarity, consistency and transparency in communication, markets will be less prone to knee-jerk reactions.” – June 21, 2018.